WealthTech Investments are Making a Comeback
Investments in WealthTech companies have rebounded to the highest level for a year.
Whilst economists and politicians hope for a V-shaped recovery in the overall economy after COVID-19, the WealthTech industry already appears to be bouncing back as wealth management firms and private and retail banks look to get back on track with their digital transformation imperatives.
Our research shows that $2.8bn was invested in 111 deals in third-party WealthTech companies during the third quarter. That’s an increase on the $2.2bn that was invested in Q4 2019, before the pandemic, and double the amount of capital that was invested in the sector during Q1 2020, when lockdown restrictions first kicked in.
The top ten deals attracted over 80% of all WealthTech investment capital in Q3 2020
Nearly $2.3bn was committed to the ten biggest deals in the quarter. The largest single deal involved Chime, the US-based digital banking FinTech company, which raised c. $485m in equity capital as part of a Series F round on a pre-money valuation of $14bn. Investors included General Altlantic, Tiger Capital Management and IQONIC Capital.
The most capital raised by a single company during the quarter totalled almost $1bn, which was raised by robinhood, the commission-free retail trading app, in three tranches, one in each month of the quarter.
The largest non-US deal was located in Brazil, as Neon, a digital bank, raised $300m in a Series C round led by General Atlantic.
Although the US still dominates when it comes to the big deals, many of the other 100+ deals were geographically spread further afield, as early-stage WealthTech innovation activity continues across Europe, Africa and Asia. (Please see the FinTech Global website, newsletter or database if you would like the details).
Wealth managers ignore WealthTech innovation at their own peril
The return to the upward trend in investments in WealthTech companies in the third quarter of 2020 seems timely given the disastrous systems meltdown that affected numerous retail investment platforms earlier this month.
The recent surge in retail investor activity exposed the technological inadequacies of the longer established online brokers and wealth managers. In the UK, Hargreaves Lansdowne and Fidelity International, amongst others, suffered crashes that prevented their clients from trading in real time, resulting in significant financial losses for some of them. Similar problems were experienced in the US for customers of established giants such as Charles Schwab and Vanguard.
The total reputational and financial damage will undoubtedly amount to more than a few days of downtime and customer complaints. This should act as a huge warning to everyone in the wealth management industry. It is apparent the challenge of digital transformation is only one of two critical imperatives — overcoming complacency is the other.
